Hostels and approved educational buildings

Wear and Tear Allowances: Tractors, lorries over 3 tonnes, heavy self-propelled vehicles. 37.5% Computer hardware, calculators, copiers and duplicating machines. 30% Motor vehicles and aircrafts (Saloon cars qualifyingvalue limited to Kshs. 2.0 million). 25%Ships, plant, machinery, furniture and equipment. 12.5%Loose tools and implements – what is just and reasonableto the commissioner.

Industrial Building Allowance:Factories 2.5%Prescribed low-cost residential housing developments. 5%

10% Prescribed hotels - up to 2006 4% Prescribed hotels - from 2007

- from 2007 Farm Works Deductions 50% Investment Deductions: Factory building and civil works - 2004 to 2008 100%Hotel building and civil works - 2004 to 2008 100%Manufacturing machinery - 2004 to 2008 100%Shipping 40%Mining capital expenditure - year 1 40% - year 2 - 7 10%Manufacturing under bond 100%Workshop machinery used for factory maintainance is eligible for investment deduction.

10%

Transfer pricing between related parties should be based on arms length prices. Where this is not possible any one of the

Expenses are deductible if incurred wholly and exclusively toproduce income. Capital and personal expenditure is generally disallowed with certain exceptions.Charitable donations and social projects costs are deductiblesubject to the charity being registered and tax exempt andministerial approval of the projects.

following methods may be used to apply prices:

• Comparable uncontrolled price method • Cost plus method • Resale price method • Profit Split method • Transaction net margin method •

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Other prescribed method

Instalment TaxesInstalment tax where applicable is payable as follows:

Fourth Sixth Ninth Twelfth Month Month Month Month

All taxpayers except agricultural enterprises 25% 25% 25% 25% Agricultural enterprises - - 75% 25%

Instalments are 20th of the month they fall due. Basis for Instalment Tax: Lower of preceding year’s tax multiplied by 110% and current year’s estimate.

payable on

SARs fall due six months after the end of the accountingyear. The balance of tax due is however payable by the endof the fourth month. Emloyees earning only salary incomeare also required to submit SARs. A spouse’s income may be filed and taxed separately.

Self Assessment Returns (SAR)

Capital Allowances

Deductible Business Expenses

Resident companies 30% Non-resident companies 37.5% Export Processing Zone enterprises: First ten years Nil Next ten years 25%

25% Newly listed companies over 30% capital listed (5 years) 27% Newly listed companies over 20% capital listed (3 years)

Newly listed companies over 40% capital listed (5 years) 20%

(d) Loans to employees For loans before 11.06.1998 tax is payable by the employee at the prescribed rate less actual rate paid

employee. by the

Furniture 1% of cost p.m. (e) Other benefits

Telephone 30% of cost p.m. Taxable benefit for employee share ownership plan (ESOPs). The difference between market price of shares and option grant price. The benefit accrues at the earlier of vesting period and exercising the option.

For loans after 11.06.1998, fringe benefit tax is payable by the employer at rate given by the Commissioner fromtime to time less actual rate paid by employee. The taxrate to be applied is the corporate rate.

Turnover tax is applicable to small businesses with aturnover per annum of up to Shs. 5 million at the rate of 3% of turnover. This will be final tax.

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BUSINESS INCOME TAXATION

Tax exempt lump sum withdrawals from both registered and provident funds is Kshs. 48,000 for each year of

pensionable service, subject to a maximum of Kshs. 480,000. Withdrawals based on 1991 and prior contributions are exempt. Earnings from non-commuted pensions are exempt up to Kshs.180,000 p.a. Monthly pension payments to personsover 65 years of age are tax-free. Withholding tax rates for pension/provident fund withdrawalsand lump sum beyond exempt limits: a) Withdrawal before 15 years expire: Kshs. 10% on the first 121,968 15% on the next 114,912 20% on the next 114,912 25% on the next 114,912 30% on amounts over 466,704

pension

b) Withdrawal after 15 years, attaining age of 50 years or retirement on health grounds: Kshs.

10% on the first 400,000 15% on the next 400,000 20% on the next 400,000 25% on the next 400,000 30% on amounts over 1,600,000

Employee not entitled to employer’s contribution before the retirement age. Any surplus refunded to/withdrawn by employer from registered fund shall be deemed the income of the employer.Withholding tax under (b) is final tax.

PENSION AND PROVIDENT FUNDS

Corporate Tax Rates

Resident Non- Resident

Qualifying dividends (for E.A.C. citizens, the resident rate is applied) 5% 10%Subsidiary and associatedcompany dividends (with > 12.5% shareholding) N/A 10%Interest from banks 15% 15%Interest on housing bonds 10% 15%Rent N/A 30%Two year govt. bearer bonds 15% 15%Other bearer bonds 25% 25%

Pension withdrawals 10%-30% 5% (graduated scales)

Royalties 5% 20%Equipment leasing (Aircraft leasing is exempted) 3% 15%Insurance agency commissions 10% 20%Insurance brokerage commissions 5% 20%Building, civil and engineering contractual fees (for local payments, this applies for payments exceeding Shs. 24,000 p.m.) 3% 20%Management, consultancy, agency and professional fees (for local payments, this applies for paymentsexceeding Shs. 24,000 p.m.)(for E.A.C. residents the rate is 15%) 5% 20% Telecommunication Services - 5%Shipping and airline income N/A 2.5%Entertainment & Sports fees N/A 20%

For public service vehicles (PSV), pick-ups, vans, lorries and commercial vehicles: Higher of Kshs.1, 500 per ton of load capacity p.a. or Kshs.2, 400 p.a.For passenger carrying vehicles: For every driver Kshs. 3,600 and for every conductor Kshs. 1, 200. For minibus, station wagons and saloon cars: Higher of Kshs.60 per passenger capacity or Kshs. 2, 400 per year whichever is higher.

Investment income

Services payments

Pensions

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WITHHOLDING TAX

Witholding Tax Rates

Motor Vehicle Advance Tax

Kenya on the said income. (b) Any tax or duty payable to Kenya Revenue Authority (except VAT and duty on imports) may be offset against any refund of tax or duty confirmed by the Kenya Revenue Authority on request. The request must be made 30 days before tax is due.

Set-Off of Tax(a) Tax paid in another country on employment income by a Kenyan citizen can be offset against tax payable on that income in Kenya to the maximum of tax payable in

Income Tax Rates for Indivuduals

Taxable incomeKshs p.a.

Rate Cumulative tax % payable Kshs. p.a

0 - 121,968 10 12,196

121,969 - 236,880 15 29,432 236,881 - 351,792 20 52,414 351,793 - 466,704 25 81,142 Over 466,704 30

Kshs. p.a. Registered Pension/Provident Schemes relief limits 240,000 Personal relief 13,944 Mortgage interest relief for owner occupied property - maximum 150,000 Home ownership savings plan 48,000 (for first 10 years) Insurance relief (life, health and education) 15% of premiums - maximum 60,000

All benefits are taxable at the higher of cost and the fair market value except:- (a) Tax-free benefits

medical, school fees (if employer taxed), registered provident/pension contributions (exempt payments to non-registered funds or in excess of relief for registered funds where the employer is tax exempt), passage for expatriates and employer’scanteen meals for low income staff.

Non-cash benefits Exempt if the cost does not exceed Kshs. 36,000 p.a. Tax-free medical benefits for directors owning over 5% shareholding is limited to Kshs. 1.0 million.

Reimbursements

For employees working out of station the first Kshs. 2,000 per diem is deemed to be reimbursement and not taxable. Expense reimbursementsare generally not taxable but require to be supported.

(b) Motor vehicles The benefit is the higher of 2% p.m. of the initial cost of

vehicle and prescribed scale rates.For leased vehiclesthe benefit is the cost of leasing. Employees with restricted private usage can apply for a lower benefit valuation.

(c) Housing Non-working directors:

15% of total income in case of arms-length lease. Whole time service directors:

15% of emoluments in case of arms-length lease. All directors: Market rent for premises owned by employer or higher of

market rent and rent paid in case of non-arms length lease. Agricultural employees:

10% of emoluments

Other employees: The higher of the rent paid and 15% of emoluments forarms-length lease.

PERSONAL INCOME TAXATION

Personal Allowances

Employment Benefits

2007 / 2008

GUIDEGUIDE

2007 / 2008

A member of International

Kenya Accountants &

business advisors

www.pkfea.com

TAXTAX

QUICKQUICK

KENYAKENYA

remit PAYE (min.Kshs.10,000)

Fraud or wilful omission Double the amount of tax

This information is prepared for guidance only and is not a substitute for professional advice. Although the Guide includes

to and including Finance Bill 2007,the Finance amendments upAct 2007 may bring in more amendments. Whilst every carehas been taken to ensure accuracy of information contained herein, PKF Kenya, its partners or associates cannot accept responsibility for any action taken without appropriate professional advice.

Interest on unpaid tax 2% per month compounded

in a return underpaid Fine not exceeding Kshs. 200,000

Imprisonment not exceeding 2 years

Failure to deduct or 25% of the amount of tax involved VAT operations failure fines ranging from Shs. 10,000 to Shs. 500,000

Offence Penalty Failure to furnish returns 5% of tax duePenalty on unpaid tax 20% of unpaid tax

TAX PENALTIES

E.A.C. TAX RATES

Corporate Tax Rates

Resident Companies

Non-ResidentCompanies

Kenya 30% 37.5%Uganda 30% 30%Tanzania 30% 30% Rwanda 35% Burundi 35%

VAT Standard Rates

Kenya 16%Uganda - Standard 18% - On residential property 5% Tanzania 20%Rwanda 18% Burundi (Sales tax) 17%

The catering levy is a 2% tax levied on hotels and restaurants billing.

Due from manufacturers at the rate of 0.2% of ex-factoryprice subject to a minimum of Shs. 1,000 p.m. and a maximum of Shs. 400,000 p.a.

The Directorate of Industrial Training is a government department that levies and administers the industrial training levy. The levy ranges from Shs. 150 to Shs. 300 per employeeper half a year depending on the industry sectors. Contributing employers qualify for reimbursement of approved training expenses.

Standard rate (applicable on taxable goods and services) 16%Zero rate (applicable on exports and specified zero-rated goods) 0%Registration threshold (turnover p.a.) Shs. 5 million

VAT is chargeable on the supply of taxable goods and services as well as on the importation of goods and services into Kenya.

Commercial property rent taxable (w.e.f. Jan 08)Insurance proceeds are exempt from VAT.(w.e.f. 15.06.07)

The Commissioner of Domestic Taxes has appointed various bodies (government departments, parastatals, banks and insurance companies for instance) as withhodingVAT agents. They are required to withhold and remit VATdirectly to the revenue authorities on a weekly basis. Theythen issue a certificate of payment to support input tax claims by the payee.

VAT is refundable where credits arise from: making zero-rated supplies; capital investments (with VAT exceedingShs. 1.0 million); tax paid in error and on debts exceedingthree years; withholding VAT credits.

VALUE ADDED TAX (VAT)

MISCELLANEOUS TAXES

Duties are chargeable on imports, exports and onspecified goods and services. Customs duties are charged under the East African Community CommonExternal Tariff.

CUSTOMS AND EXCISE DUTIESCustoms Duties

Training Levy

Taxable Value

Special Considerations

Withholding VAT

VAT Refunds

Standards Levy

Catering Levy

Imported services attract reverse VAT, payable by the importer.

Customs Duty Rates:Raw materials 0%Semi-finished goods 10%

Tobacco products advolerum (per pack)Petroleum advolerumVehicles-locally assembled 0% - imported 10%-20%Used motor-vehicle spare parts 20%Jewellery 10%Gambling 5%Mobile cellular phones 10%Plastic bags 120%Bottled water and sodas 10%

Contributions set at 10% of monthly income up to a maximum of Kshs. 400 per month; half paid by employerand half by employee. Compulsory for employers with fiveor more employees.

In case of casual employees only the employer pays 5% of gross wages.

NATIONAL SOCIAL SECURITY FUND

Payments are set at graduated scale starting at Shs. 30 to a maximum of Shs. 320 on salaries of Shs. 15,000 and above.

NATIONAL HOSPITAL INSURANCE FUND

Increase in share capital 1% Transfer of stock or marketable security 1% (No duty on quoted securities) Transfer of immovable property in: Municipalities 4% Outside municipalities 2% Debenture or mortgage: Primary security 0.2% Auxiliary security 0.1% Lease 1 and 2 years 1% of annual rent Lease over 2 years 2% of annual rent

STAMP DUTY

Excise duties are charged on a variety of products:

Beer, wines and spirits specific (Shs. 50 to Shs 280per litre)

Excise Duties

Exemptions:Husband wife transfers. Family to family controlled company land transfers.Transfers between holding and subsidiary companies with shareholding > than 90% .Transfer of land for school construction.

Finished goods 25%IDF fees (exempt for EAC) 2.25%Export duties - lead acid batteries 20% - raw hides and skins 40%

Internal Tariffs for Kenyan exports to Uganda and Tanzania are gradually being eliminated and should be zero by the year 2008.